Sterling Vs Euro Hits 2-Year High, as Brexit Deal Nearer

If you intend to transfer money to Spain or France in the near future, it may interest you to know that the sterling vs euro interbank exchange rate has hit a 2-year high recently. To be specific, this past Sunday 5th May, the pound reached 1.1798 against the euro, its strongest since May 12th 2017, or close to 24 months.

To reach this 2-year high, sterling has risen from 1.1625 on May 1st, a gain of close to +1.75 cents in a week.

To put this rise in the interbank exchange rate into context for you, on January 1st 2019, sterling was as weak as 1.1087 versus the Eurozone's common currency. As a result, GBP has climbed by +6.41% versus the EUR in the last 4 months, or over +7 cents.

At this 2-year high interbank exchange rate, £250,000 in euros would be worth €294,950. This compares to €277,175 at the beginning of 2019. That's an increase of +€17,775.

Meanwhile, today at the time of writing, the pound to euro interbank exchange rate stands at 1.1712. This is still over +6 cents higher than on January 1st this year.

This could be potentially beneficial for you, if you intend to buy a property in the Mediterranean later this year, or to emigrate to the Costa del Sol or the South of France. This increase in the interbank exchange rate might also be helpful, if you're a UK business owner, and you make international payments to the Eurozone from Great Britain.

This is because, when you transfer money from the UK to your bank account in the Eurozone, you might now get a notably higher total in euros, compared to in recent months.

A big reason why the sterling vs euro exchange rate has risen is because, in the UK, the Conservative and Labour Parties look increasingly likely to agree a Brexit deal. Let's take a closer look at this factor that's contributed to lift the value of the pound versus euro, which might be helpful for your money transfer.

Conservative and Labour Parties Look Closer to Brexit Deal

A partial explanation why the pound to euro interbank exchange rate has reached this 2-year high is because the UK's two largest political parties now look closer to reaching a Brexit agreement.

Since last month, when the EU extended the UK's Brexit deadline by six months to October 31st, the Conservatives and Labour have been negotiating a Brexit deal. The parties' goal is to agree a version of Brexit that both sides can support, to win a majority in the House of Commons. Then, the UK government can forward this deal to the EU for ratification.

In the past week, both the Tories and Labour have made upbeat remarks about the progress of the negotiations. For example, last Tuesday 30th April, Labour's Shadow Environment Secretary, Sue Hayman, said that the two sides have had "a really constructive discussion". Meanwhile, last Wednesday 1st May, the de facto Deputy Prime Minister, David Lidington, said that talks have been "productive" and "positive".

In addition, last Thursday 2nd May, both parties suffered heavy losses at the local elections. This has been interpreted as a sign that the electorate wants a Brexit deal to be done. In particular, the Conservatives lost -1,306 councillors compared to 2015, while Labour shed -77 councillors. The local elections' biggest winners were the Liberal Democrats, with +679 gains, reports the BBC.
As a result, both main parties now have a strong incentive to agree a Brexit deal, to prevent further election losses in future. For example, Labour leader Jeremy Corbyn told ITV last Friday 3rd May that there's a "huge impetus" on all MPs to "get a deal done". This is because British voters are losing patience with the political parties over Brexit, says Mr. Corbyn.

Also, Mr. Corbyn's deputy, the Shadow Chancellor John McDonnell, tweeted following the disappointing results that: We’ll see what final results of local elections look like by end of day as they are pretty mixed geographically up to now but so far message from local elections- “Brexit - sort it.” Message received."

Meanwhile, The Sunday Times newspaper's Political Editor, Tim Shipman, has reported that Prime Minister Theresa May is preparing to offer concessions to Labour in the cross-party talks, to reach a Brexit deal. According to Mr. Shipman, Mrs. May will make Mr. Corbyn a "big, bold offer" this Tuesday, with "three major concession in a bid to force MPs to back a new deal."

The Prime Minister has set a deadline for the cross-party talks of this week. As a result, financial markets are hopeful that the Conservatives and Labour will agree a version of Brexit in the next few days. This optimism helps explain why the sterling vs euro interbank exchange rate has reached this 2-year high.

Moreover, it's worth adding that, if the Tories and Labour agree a Brexit deal this week, this will give reassurance to British businesses about the UK's future relationship with the EU. This follows months of uncertainty, in which British firms have held back from hiring and investing, until the UK's Brexit outlook becomes clear.

As a result, Brexit clarity could accelerate the UK's economic growth in coming months, as firms make up for lost time. This too could support the value of the pound versus the euro.

Cross-Party Talks Divisions Remain, May Could Resign

However, it's important to note that, even though a cross-party Brexit deal between the Conservatives and Labour looks more likely this week, important hurdles remain. In particular, both political parties remain divided about the version of Brexit they want, and their ideas for the UK's future relationship with the EU.

One clear point of division is that Labour wants the UK to remain in a Customs Union with the EU after Brexit. This will ensure that the UK retains close trade ties with Europe, our biggest trading partner, to facilitate imports and exports after we exit the EU. In turn, this could support the UK's economic growth.

That said, if the UK remains in a Customs Union with the EU, this would mean that the UK stays tied to European regulations in future. In turn, this would prevent us from forming independent trade deals with third-party countries, such as with the USA or China. For many Brexit voters, this is a key attraction of exiting the EU.

Furthermore, part of Labour's approach to Brexit is to protect existing EU regulations about workers' rights and the environment, and transpose these into UK law. Meanwhile, the Conservatives favour liberalising these regulations, to spur the UK's GDP (Gross Domestic Product) growth, and enable trade deals with other countries. This division will also have to be resolved.

Moreover, within both the Conservative and Labour Parties, many MPs oppose the idea of reaching a cross-party deal. In particular, there's already strong pressure on Prime Minister Theresa May to resign, following her handling of Brexit. If Mrs. May does a deal with Labour, this could "could split the Conservative Party down the middle" warns The Sunday Times' Political Editor, Tim Shipman.

With this in mind, even though a Brexit deal between the UK's two main parties looks likelier this week, it's by no means guaranteed. Moreover, even if Mrs. May and Mr. Corbyn reach an agreement, this might then be rejected by Tory and Labour MPs. In fact, the two leaders' jobs could be at risk, if they reach a deal.

As a result, even though the sterling vs euro interbank exchange rate has hit this 2-year high recently, there are clear risks for the value of the pound versus the euro, looking ahead. You might find this helpful to keep in mind, if you're a Brit thinking of exchange pounds for euros in the foreseeable future, either to buy a holiday home or for your business.

Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.